COMPANY RESEARCH

RECOMMENDATION: ACCUMULATE 7th March 2007

(ASX Code: DWY, AIM Code: DWY)

Dwyka Diamonds Limited
ACQUISITION OF HIGHLY PROSPECTIVE AFRICAN NICKEL ASSETS MARKS THE START OF A GROWTH STRATEGY OF DIVERSIFICATION AWAY FROM THE CORE BUSINESS OF DIAMONDS
Note: Investment in shares of Dwyka Diamonds Limited should be considered Speculative. Investors should seek appropriate advice before making a decision to invest in Dwyka Diamonds Limited (see page 4).

Key Investment Points

PRINCIPAL OBJECTIVE: Dwyka Diamonds has recently announced a diversified growth strategy which will now see the Company broaden its asset base from purely diamonds into other key commodities. As part of the new focus the Company will change its name to Dwyka Resources Limited. Dwyka now has four cash generating diamond projects including its De Beers Tailings Retreatment Project, the Newlands and Blaauwbosch underground diamond mines and the Industrial Products business which manufactures bricks and building materials in the Northern Cape. The Company has recently announced that it has acquired the Muremera Nickel Project in Burundi, which is located 2km from Kabanga, one of the largest undeveloped nickel sulphide deposits in Africa. The Muremera Nickel Project, which has been subject to significant United Nations funded exploration, has on it several identified geophysical anomalies and targets believed to be generated from buried sulphides. The identified anomalies are considered similar in character to the Kabanga nickel sulphide signature. The acquisition has attracted funding support of industry major BHP Billiton in a recently announced joint venture over the Project whereby BHP Billiton, in stages, is earning up to 50% interest in the project by expending up to US$5.2 million. Management has a track record of making good deals throughout Africa and developing strong relationships with major mining houses in the region.

Project Locations

DRAFT REPORT NOT FOR DISTRIBUTION

New Acquisition: Muremera Nickel Project, Burundi

Current ASX Capital Structure
Price of Ordinary Shares (cents) No of Ordinary Shares on Issue (million)* 12 Month Price Range of Ordinary Shares (cents) No of Options (unlisted) on Issue (million)** Market Capitalisation ($ million) Current Cash Position (Est.$ million) Top 5 shareholders currently hold 31.6% of total issued capital. Top 5 Shareholders: (22/2/07): Chase Nominees Limited (9.46%), Mellon Nominees (UK) Limited (6.72%), Allerton Horizon Limited (6.46%), Pershing Keen (4.53%), Simpson Financial Limited (4.43%). *The Company has advised in a recent announcement that it is undertaking a Share Purchase Plan (SPP) and placement to a total value of A$5million. These additional shares have not been taken into account on this table. Directors: Ms. Melissa Sturgess (Chairperson) Mr. Adrian Griffin (CEO) Mr. Mike Langoulant (CFO) Mr. Ed Nealon (Non Executive Director) Dr. Evan Kirby (Non Executive Director) 42 100.2 38.0 — 94.5 2.5 42.1 2.0

Source:Iress

Montagu Stockbrokers Pty Ltd Level 2, 37 St Georges Terrace, Perth WA 6000 PO Box Z5005, Perth St Georges Terrace, WA 6831 T 61 8 9225 2800 F 61 8 9325 4311 www.montagu.com.au ABN 46 009 368 432 A Participant of ASX Group AFSL No. 238333

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Company Background

♦ At Stage 2, BHP Billiton will invest US$2,000,000 on target testing
in order to earn a further 20% equity (total 30%); and;

Dwyka Diamonds Limited (the Company) is a predominantly African ♦ At Stage 3, BHP Billiton will invest a further US$2,000,000 on focused resource company listed on the ASX since December 2000. resource definition and the completion of a concept study in order The Company, subsequently in December 2001, successfully listed on to earn the remaining 20% equity (up to a total of 50% interest in the London Alternative Investment Market. Since listing the Danyland). Company has concentrated exploration on a number of advanced diamond properties in South Africa and Tanzania and over time has built up a strong portfolio of diamond producing assets. BHP Billiton has retained the rights withdraw from the Project during or after completion of any of the stages, but if it withdraws These assets include production of diamonds from a diamond tailings during a particular stage it retains only the equity earned by virtue retreatment project with De Beers, as well as production from three of having completed the previous stage. The project will be hard rock kimberlite diamond mines (Blaauwbosch, Newlands and managed by the Danyland board of directors on which Dwyka and New Elands) and production from the Nooitgedacht Alluvial Diamond BHP Billiton will have equal representation. Mine. The cash flows from these projects are now expected to build steadily over the coming months and years and as a result the Board of Directors have considered it timely to seek other resources opportunities, to provide other growth opportunities for the Company. Upon BHP Billiton fully satisfying its earn-in obligations, the parties will contribute to further development of the Project in proportion to their percentage shareholdings in Danyland. Normal default and dilution provisions apply where a party fails to meet its share of project funding.

We view the new acquisition and joint venture favourably and Recognising the current ongoing strength in the nickel market and believe it provides the company with exposure to significant upside taking advantage of what is believed to be an outstanding strategic upon exploration success. acquisition opportunity, the Company has acquired the rights to explore the Muremera Nickel Project in Burundi, Central East Africa. Overview of the South African Diamond Portfolio The Company’s acquisition has immediately attracted the interest of BHP Billiton who through a Joint Venture agreement will assist with funding planned exploration discussed below.

De Beers Tailings Retreatment Project

(DWY 40%)

Mining in and around the Kimberley township since 1888 by De Beers has resulted in the creation of vast mine dumps, the material of Muremera Nickel Project Bringing Diversification which was only coarsely crushed. This has created the opportunity to recover further diamonds from tailings reprocessing. The Company and its Black Empowerment partner has negotiated with Muremera Nickel Project (DWY 100% via Danyland Limited) De Beers to allow the processing of approximately 80,000 tonnes per month of tailings. Revenue is derived by sharing the profits from The Muremera exploration licence is located within 2km of Barrick & sales of produced diamonds at pre agreed prices minus operating XStrata’s giant Kabanga Nickel Project, believed to be one of costs. Africa’s largest undeveloped nickel sulphide deposits, with current indicated resources of 9.7 million tonnes grading 2.37% nickel and a Nooitedacht Alluvial Diamond Mine (DWY 70%) total estimated inferred resource of 36.3 million tonnes grading 2.8% Located 15km northwest of Kimberley The project covering 4,671km nickel. extends for 6km along the eastern bank of the Vaal River. The property prior to Dwyka's acquisition was mined by contract diggers The Kabanga deposit, which is located immediately across the under a licence arrangement with De Beers. The Project boasts border in Tanzania, was discovered by drilling after geophysical some very large diamond finds including the Largest alluvial prospecting by the United Nations Development Programme Diamond ever recovered in South Africa (Ventnor Stone at 511 (“UNDP”), in 1976. Further UNDP surveys undertaken in 1978 carats) two plus 300 carat stones and fourteen 100 carat stones. resulted in the discovery of the highly prospective Muremera The property currently yielding approximately 0.72chpt continues to anomalies located on the Burundi side of the border. yield some large stones. The anomalies showing similar characteristics to Kabanga. In addition, follow up work undertaken by UNDP has confirmed that massive sulphide bodies, potentially with nickel mineralisation, are the source of the anomalies. Extensive geophysics and geochemical surveys have delineated numerous targets requiring immediate drill testing, however the absence of any drilling to date has resulted in the previous owners being unable to confirm and establish any form of resources at the project.

Newlands Kimberlite Diamond Mine

(DWY 70%)

Located 60km northwest of Kimberley 0n the Harts River. The project consists of five kimberlite blows occurring on two northeast striking fissures. The Company purchased the mine in April 2005, modified the processing plant and starting treating ore from tailings and underground by August 2005. In 2006 the operations were expanded to two shifts (24 hours) . The company envisages and is now achieving a target of 10,000tonnes of ore per quarter processed.

BHP Billiton Earn-in Details

BHP Billiton has agreed to spend US$5.2 million on the Muremera nickel project in Burundi in order to earn a shareholding of up to In its latest quarterly Dwyka reported production was on target with 50% in Danyland which holds the exploration rights for nickel and 7,920 tonnes of underground ore had been processed recovering 954.27carats at an average grade of 12.04cpht. We note a significant associated minerals in the Muremera target. amount of large stones reported including: seven stones ranging Under the Agreement, BHP Billiton’s investment will be undertaken from 7.20 carats to 3.81 carats. in 3 stages as follows: A further 3,810 tonnes of old pre-Dwyka tailings were also ♦ At Stage 1, BHP Billiton will invest US$1.2 million on initial reprocessed recovering 352.42 carats averaging 9.24cht with a 9.49 carat and a 3.36 carat stone amongst the recovered diamonds from exploration activities in order to earn a 10% equity in Danyland; tailings.

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Blaauwbosch Kimberlite Diamond Mine

(DWY 70%)

Itanana Kimberlite

(DWY 90%, De Beers 10%)

Located 90km east of Kimberley in the Borshoff diamond province.

Smaller than the Mahene pipe the nearby Itanana Pipe is approximately 2.3 hectares in diameter. Limited sampling by De The mine history of produced 967,000 tonnes of ore yielding Beers has indicated a grade of 3cpht but microdiamond work 338,000 carats at an average grade of 34.95 cpht before flooding suggests that the grade mat be nearer 8 cpht i.e. similar to the caused the closure of the operations in 1967 which by then mining Williamson Mine. The pipe will be further sampled when the was at a depth of 110 metres. results of the Mahene pipe are assessed and realised. The mine was purchased by Dwyka in April 2005. By September reprocessing of tailings had commenced. Following a short period of underground mine production the shaft was deepened (now at 225metres and the plant redesigned for better efficiency. In March 2006 the main Kimberite pipe was intersected by workings.

Overview of the Indian Diamond Assets

In November 2002 Dwyka signed an agreement with BHP Billiton to Dwyka's management envisage full production will eventually be explore for hard rock diamond deposits in India. The alliance around 10,000 tpm by April 2007. The first ore blocks were covers approximately 55,000km2 of BHP Billiton tenements which blasted and hauled to surface in January 2007 following an period BHP had spent 2 years acquiring. of mine development. During the December quarter 7,609 tonnes of ore was mined yielding 1,015.99 carats at an average grade of 13.35cpht. We note the recovery of 22 stones ranging in size from 6.38 carats to 3.16 carats. In addition a further 5,546 tonnes of old tailings were processed yielding 267.54 carats at a grade of 4.82cpht.

New Elands Kimberlite Diamond Mine (DWY 70%)
Located 90km northeast of Kimberley in the Borshoff District, Free State. Historical production has yielded 1.5 million tonnes for 464,000 carats at an estimated high grade of 34.24 cpht. Following acquisition under option in 2004 the Company plans to rehabilitate the existing well preserved workings once the Blaaubosch and Newlands mines are in full production. Currently some small production is underway from tailings reprocessing.

South African Industrial Minerals Division
Dwyka also has a 70% stake in a profitable industrial division in the Northern Cape on South Africa which comprises of two brands Supermix and Biz Afrika which supply paving stone, bricks, concrete and other building materials to the building industry. The remaining 30% stake is owned by the Company’s Black Empowerment Partner Kolong Investments. In the December quarter the division reported a solid quarter with brick and concrete sales up to R5,121,943 (~A$0.9 million) with the Company's brick plant having to implement a second shift due to strong demand for bricks. India has been known for centuries as a world class leader in hosting high quality large diamonds. Examples of large stone include Kohinoor 793 carats, Great Moghul 787 carats, Regent 410 In October 2005 the Company announced a Joint Venture had carats and the Orloff Stone 189 carats. All of India’s production been signed with De Beers to explore two known diamondiferous has been derived from alluvial deposits the majority of which are kimberlite pipes named Mahene and Itanana located in Nzega in the Krishna River of central and southern India. However the District of Tanzania. hard rock sources to these diamonds have never been discovered.

Overview of the Tanzanian Diamond Assets

Mahene Kimberlite

Recently Rio Tinto also active in the region announced it had discovered three kimberlite pipes within 70km of Dwyka’s and BHP Covering an area of approximately 6.8hectares the Mahene Billiton’s tenements at Bunder, Madhya and Pradesh. kimberlite pipe is the largest pipe on Dwkyas inventory presently. De Beers previously drilled and bulk sampled (53 tonnes) of the The JV partners are very encouraged by these new discoveries and kimberlite returning a grade of 8cpht. Dwyka point out that this is are continuing with exploration test work which indicates comparable to the grades mined by De Beers at the nearby kimberlites are present in the areas of interest. We await further Williamson mine. Some test work has suggested that the grade of news on what we believe to be very exiting frontier exploration, the pipe could be in places as high as 26cpht and that larger which if successful, could have significant upside for Dwyka’s stones have yet to be discovered. Dwyka plans to bulk sample an share price. additional 100,000 tonnes to assess the economic potential of the pipe.
(DWY 90% De Beers 10%)

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Share Placement Plan To be Conditionally Underwritten By Montagu Stockbrokers
On 17th January 2007 the Company announced its intention to undertake a Share Purchase Plan (SPP) with existing shareholders in addition to undertaking a placement to a maximum of $5million. Montagu Stockbrokers has conditionally agreed to underwrite the SPP which will enable shareholders to subscribe for up to $5,000 of shares at 31cps equating to a 20% discount to market price.

Director Profiles and Key Personnel
Ms. Melissa Sturgess, Executive Chairperson BSc, MBA
Ms. Sturgess, who was appointed to the Dwyka board in April 2001, became an Executive Director in November 2002. In June 2003, she was appointed to the position of Chief Executive Officer of the Company, and in June 2005 became its Chairman. Ms. Sturgess, who holds a Bachelor of Science degree and an MBA from The University of Western Australia, began her career with British Airways before moving on to law firm Mallesons Stephen Dr. Evan Kirby, Non Executive Director Phd Jaques. Having founded her own consultancy in 1994, Ms. Sturgess has been actively involved in the corporate development Dr Kirby was appointed to the Dwyka board in November 2002. A metallurgist, he worked in South Africa for 17 years — primarily of a range of public companies. for Impala Platinum, Rand Mines and Rustenburg Platinum Mines before moving to Australia in 1992. In Australia, Dr Kirby worked Mr. Adrian Griffin, Chief Executive Officer BSc for Minproc Engineers and Bechtel before starting his own Mr. Griffin, who graduated from the University of Melbourne in consulting business a decade later. With his broad experience, he 1975 with majors in geology and metallurgy, was appointed to has been involved in the development of a wide range of mining the board of Dwyka in December 2005. With 30 years’ experience and minerals processing projects in Africa and Australia, as well in the mining industry, his responsibilities during that time have as other parts of the world. included exploration, feasibility studies, financing and the development of a wide range of commodities. Mr. Griffin’s Mr. Mike Langoulant (CFO), Chief Financial Officer CA exposure to the industry worldwide includes professional involvement in Africa, Asia, Eastern Europe, Australia and Appointed to the Dwyka board in April 2005, Mr. Langoulant is a Antarctica. He has been instrumental in the development of chartered accountant with 20 years’ experience in corporate operations that have explored for and produced a range of administration and fundraising for public companies. Having commodities, among them gemstones, iron ore, base metals, spent 10 years with large international accounting firms, during mineral sands, platinum group metals and gold. which time he acted as chief financial officer, company secretary and non-executive director with a number of publicly listed Mr. Ed. Nealon, Non Executive Director BSc companies, Mr. Langoulant established his own consultancy firm A Director of Dwyka since April 2000, Mr. Nealon is a qualified in 1994. geologist with 29 years’ experience in the mining and exploration industry. Having spent six years in South Africa with AngloAmerica Corporation, he moved to Australia in 1980 and spent two years involved in exploration with the Rio Tinto Group. In 1983, Mr. Nealon founded his own consulting company and since then has practiced in Africa, Australia, the United States and Canada, as well as other regions.

Risks Associated with Investment In Dwyka Diamonds Limited
Potential investors need to be aware that investment in Dwyka Diamonds Limited, like all investments in junior resource companies, is of a highly speculative nature. Normal share market risk conditions apply including commodity prices, currency fluctuations, sentiment, supply and demand and general economic outlook. Normal exploration, development and production risks also apply as well as operating, environmental, and sovereign risks.

Disclosure Disclaimer & Warning
Disclaimer
The author of this publication, Montagu Stockbrokers Pty Limited ABN 46 009 368 432 (‘Montagu’), its Directors and their Associates from time to time may hold shares in the securities mentioned in this research document and therefore may benefit from any increase in the price of those securities. Montagu and its Advisers may earn brokerage, fees, commissions, other benefits or advantages as a result of transactions arising from any advice mentioned in publications to clients. Montagu does not provide corporate advice to Dwyka Diamonds Limited. Montagu has agreed to conditionally underwrite Dwyka Diamonds $5.0 million share purchase plan announced on 17th January 2007. Montagu will receive a fee for preparation of this report. Any financial product advice contained in this document is unsolicited general information only. Do not act on this advice without first consulting your Adviser to determine whether the advice is appropriate for your investment objectives, financial situation and particular needs. Montagu believes that any information or advice (including any financial product advice) contained in this document is accurate when issued. However, Montagu does not warrant its accuracy or reliability. Any opinions, forecasts or recommendations reflects the judgment and assumptions of Montagu as at the date of publication and may change without notice. Montagu, its officers, agents and employees exclude all liability whatsoever, in negligence or otherwise, for any loss or damage relating to this document to the full extent

permitted by law.

A Participant of the ASX Group

Report compiled by Ian Spence BSc. (Joint Hons) Geology & Petroleum Geology, MSc. Mineral Exploration & Mining Geology, MBA Resource Consultant

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